In many years, understanding the direction of the economic world and underlying financial markets is relatively straight-forward. Professors and students of finance alike can estimate predicted growth or contraction models and identify a relatively reasonable direction. 2021 poses many challenges for the imagined professors and students of finance due to many challenging lingering economic challenges facing the world, most of them related to Covid-19. The economy of most of the world was humming along quite nicely at the start of 2020. Alex Djerassi enjoys learning about the economy. Consumer confidence and savings were growing, unemployment the world over was at reasonably low levels, and despite lingering trade tension between China and the United States, world trade was expanding. Then, Covid-19 hit, disrupting trade, travel, employment, and virtually every economic model tracking world performance. Not all economic models and industries were equally impacted by Covid-19. Industries like travel and entertainment were significantly impacted, while technology companies expanded significantly taking advantage of remote workers leveraging technology to perform their work. Unemployment increased significantly and many individuals were left with much uncertainty and confidence in their financial positions.
Still, thanks to support from various central banks, stock markets maintained themselves fairly well despite heightened uncertainty, though there was greater volatility in markets due to Covid. Much of the uncertainty underpinning 2020 financial markets still exist heading into 2021, despite renewed hope for a vaccine and growing immunity to Covid-19. As a result of this uncertainty, several industries are likely to have slow recovery such as travel-related industries, restaurants, movie theaters, amongst others. Even if a vaccine were to be known to be effective and quickly deployed, these industries will have a slow return to normalcy. Since there are many individuals who are employed by these industries, this will likely lead to unemployment remaining stubbornly high and will constrain the economic recovery that many are hoping for. Real estate markets will also continue to be impacted by Covid-19 in 2021. Commercial real estate demand has decreased significantly in 2020 due to covid-19 and this will likely continue next year as employees remain working from home and businesses shutter their office space. The demand of commercial real estate will continue to be low and supply will be low, impacting landlords significantly. Residential real estate in big cities will likely be negatively impacted by Covid next year as the major benefits of big city living such as the restaurants and social life, will be constrained during covid. One area of the economy that is sure to heat up around the world is government spending which will be supported by deficit spending. Central banks will continue to issue currency and print money to do so. This government support should help serve as a buoy to financial markets and improve employment levels. Look to increased spending on infrastructure projects as many nations shore up their infrastructure for long term economic growth prospects. The coming year will be full of financial and economic problems due to the lingering effects of the covid-19 epidemic. Financial stability is likely to occur in the second half of the year with markets recovering and pent-up demand pushing the market forward.